Suntec – Phillip
Full Year 2009 Results
• Full year revenue of $253.1 million, net property income of $192.2 million, distributable income of $189.6 million.
• 4Q09 DPU of 2.887 cents, bringing full year DPU to 11.703 cents.
• Total asset value of $5.2 billion.
• Maintain hold recommendation with fair value of $1.21
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Results within expectations
Suntec REIT recorded full year revenue of $253.1 million (+5.4% y-y), net property income of $192.2 million (+5.5% y-y) and distributable income of $189.6 million (+13.1% y-y). Full year DPU was 11.703 cents (+6.2% y-y). Suntec REIT full year results came in better than our projections (revenue +4.1%, net property income +2.3%, distributable income +7.3%, DPU +10.8%). The increase in revenue is backed mainly from higher office rental achieved in 2009. For FY2009, office portfolio accounted for 47% of gross revenue while the retail portfolio accounted for 53% of gross revenue.
We continue to see weakness in asset valuation. In the property valuations as at 31 Dec 2009, Suntec City recorded 3.8% decrease in value, while Park Mall and Chijmes held steady valuations. One Raffles Quay also recorded 11.7% devaluation. Including Suntec convention centre, which was acquired in September 2009, Suntec REIT has total asset value of $5.2 billion.
Quarterly results review
The office portfolio continues to see weakness in reversionary rent. New leases were contracted in 4Q09 at an average rate of $7.11 psf per month, which was the lowest in the 2-year periods from 1Q08 to 4Q09. However we could observe that the rate of decline has slowed. We believed the drop in rental could also be attributed to management trying to strike a balance in maintaining the office occupancy rate. Office occupancy has increased from 94.8% in 2Q09 to 96.8% in 4Q09. On the other hand, retail occupancy has dropped slightly from 99.1% in 3Q09 to 98.1% in 4Q09. Suntec REIT has managed to achieve relatively high portfolio occupancy amidst the recession and we think management has done a good job in maintaining this.
Capital management
Suntec REIT has total debt of $1,752 million and gearing (debt/assets) of 33.3%. It has no near term refinancing concern. The next loan maturity is in 2011 with loan amount of $632.5 million.
Forecasts
We retain our gross revenue forecasts and made slight changes to our DPU forecast. We forecast FY2010E revenue to decrease 5% before registering growth in FY2011E. Our DPU forecast for FY2010E is 8.49 cents, translating to a yield of 6.4%. Suntec REIT will be issuing the remaining of the 69 million deferred units this year. We believe average office rent may be bottoming for Suntec REIT, however we think spot office rent may be sticky for a while and do not expect a quick pick-up. We utilized a lower WACC assumption in our DCF valuation and raised our fair value from $1.14 to $1.21. We maintain our hold recommendation.
FSL – OCBC
Manager offers a more positive outlook
Results in line. FSL Trust (FSLT) announced US$24.5m in 4Q09 revenue, down 4.6% YoY and 0.6% QoQ. The revenue decline was because of the Geden charters that are pegged to US$ LIBOR and re-set quarterly (this volatility is offset by the interest costs on the two vessels which are also floating). Net cash generated from operations of US$16.2m rose 0.8% YoY but fell 8.4% QoQ. The QoQ decline was due to higher interest margins as per the amended loan facilities which lowered loan-to-value covenant requirements from 145% to 100% for two years. FY09 revenue and cash earnings were within 0-3% of our estimates.
4Q DPU of 1.5 US cents; 1Q guidance the same. DPU was flat QoQ but fell 51.3% YoY to 1.50 US cents because of a lower payout policy. The current payout represents 55.6% of net cash generated from operations versus 96.3% a year ago. FSLT is using the retained cash to repay roughly US$8m in loans per quarter. FSLT is guiding for a 1Q10 DPU of 1.50 US cents (flat QoQ, down 39% YoY), equivalent to an annualized yield of about 14%. The manager said it would continue to limit guidance to one quarter ahead until FSLT was “well and truly through” the crisis.
What next? The manager said it was “well advanced” to deploy the US$28.3m net proceeds from the Sep 09 placement towards acquisitions. FSLT re-iterated its focus on attaining asset yields of about 15% and unlevered IRR of 11-12%. The manager also said its minimum threshold for charterer credit health is BB- or equivalent. Note we don’t expect FSLT to gear up on the proceeds in the near-term.
Manager offers a more positive outlook. In Nov 09, FSLT had to postpone its senior unsecured notes offering but it said it is open to re-visiting the offering in coming months. While the cost of unsecured debt is likely to be significantly higher vis-à-vis the current facilities, it would benefit FSLT (in our view) by reducing the ratio of secured debt to collateral. The manager presented a fairly positive outlook of both the industry and its prospects in 2010. FSLT believes it has “moved past the point of highest counterparty default risk in this cycle”. It further guided that while 2009 was about “putting its house in order”, 2010 would be about slowly returning to a growth strategy. Maintain HOLD with S$0.53 fair value or 2.2% total return.
Suntec – DMG
Earnings within expectations; BUY
Stable 4Q09 earnings; earnings in-line. Suntec REIT reported 4Q09 results DPU of 2.89¢ (+1.0% YoY; -1.2% QoQ). FY09 DPU (including deferred units) came in at 10.9¢, broadly in-line with ours and consensus estimates. Net property income fell 1.4% YoY on the back of lower retail rental income. Suntec will trade ex-4Q09 distribution on 29 January. Maintain BUY, DDM-based TP of S$1.56 (S$1.45 previously), implying 6.5% yield at fair value.
Suntec retail occupancy slipped marginally. Suntec REIT’s portfolio office occupancy improved 0.4ppt QoQ to 96.8%. Both Park Mall and One Raffles Quay remains 100% occupied while Suntec City office registered a 0.5ppt QoQ improvement in occupancy to 95.3%. In contrast, Suntec’s retail occupancy saw a slight occupancy decline of 1ppt to 98.1%, due largely to the 1.4ppt decrease in Suntec City mall’s occupancy, which now stands at 97.6%.
Gearing at healthy 33% despite asset writedown. Suntec REIT undertook an asset devaluation of S$274m (or 5%) in Dec 09, bringing its portfolio AUM to S$5.1b, inline with our expectation. Its recent cash call of S$153m was used to repay debt facilities, hence capping its gearing to 33.3%, inline with large cap peers such as CMT, CCT and A-REIT, which boasts gearings of between 30-33%. We do not foresee further cash calls in the near term in view that asset values are likely to remain intact in 2010.
Tenant retention remains key focus in 2010. The focus on tenant retention remains paramount for Suntec REIT, in view that the bulk of leasing activity currently involves replacement demand, i.e. tenants moving from older office blocks to newer ones. Suntec REIT currently offers up to 2-months rent free to ensure that its effective rates are competitive vis-à-vis new office landlords. We believe Suntec REIT will likely register negative rental reversion in 2010 in view that the pace of systemic leasing activity is unlikely to match up with the colossal supply of ~2.7m sqft of un-leased office space that will be injected into the system this year. We adjust our FY10 DPU estimate from 9.3¢ to 10.1¢ to account for lower interest cost and raise our TP to S$1.56 (from S$1.45). At our TP, stock still offers attractive yield of 6.5%, above its heyday yields of 4.6%.
FCT – CIMB
Positive rental reversions
• Results in line; maintain Outperform. 1Q10 DPU met Street and our expectations (26% of our estimate). Net property income (NPI) grew 24% yoy, thanks to positive rental reversions and increased contributions after the asset enhancement of Northpoint. We expect Northpoint II and Yew Tee Point to contribute from 2HFY10. We maintain our estimates and DDM-based target price of S$1.73 (discount rate 7.9%). We see stock catalysts coming from distribution growth and occupancy resilience.
• NPI of S$15.9m, up 24% yoy. The growth was mainly attributed to positive rental reversions (average +1.3% p.a.) at Causeway Point and higher contributions from Northpoint after the completion of asset enhancement work in Aug 09. Average rents at Northpoint increased 20% from S$11psf to S$13.20psf after refurbishment. Distributable income of S$12m grew at a slower pace than NPI, by 4% yoy due to
higher interest expense on additional debt drawn down to finance capex.
• Portfolio occupancy grew 1.3% pts to 98.6%. Northpoint’s occupancy improved the most, by 5.2% pts to 95.1%. Committed occupancy was 99% as at Dec 09.
• Asset leverage of 29.7%; NAV unchanged at S$1.22. Debt due in FY10 is only S$10m or 2.9% of FCT’s total debt.
• Northpoint II and Yew Tee Point to contribute. Earlier this month, FCT announced the acquisition of Northpoint II and Yew Tee Point from its sponsor, FCL. We expect these two assets to add to distributable income from the second half of this year. But as expiry leases in 2010 are limited to 5% of FCT’s gross rental revenue, we expect organic growth to be rather muted in forward quarters.
Suntec – BT
Suntec Reit’s Q4 DPU edges up
This brings 2009 DPU up 6.2% to 11.703 cents
SUNTEC Real Estate Investment Trust (Reit) reported a distribution per unit (DPU) of 2.886 cents, for its fourth quarter ended Dec 31, 2009, one per cent higher year-on-year.
This brings its DPU for 2009 to 11.703 cents, a 6.2 per cent increase.
Its distribution income for the quarter stood at $47.83 million, up 8.4 per cent from $44.1 million for the same period a year ago. For the year, Suntec Reit posted a distribution income of $189.6 million compared to $167.7 million for 2008.
‘I am happy to report that, amidst the serious challenges in 2009, we managed to record a strong growth of 13.1 per cent in our distribution income for the financial year ended December 31 2009,’ said Yeo See Kiat, chief executive officer of ARA Trust Management (Suntec) Limited, the manager of Suntec Reit.
‘Furthermore, we managed to secure a club loan of $825 million . . . in early 2009 to address all our refinancing needs in FY09.’
Gross revenue for the quarter, however, slipped 2.7 per cent to $61.8 million, mainly due to lower retail revenue.
Suntec Reit’s gross office revenue saw a marginal increase of 0.3 per cent to $28.8 million for the quarter because of marginally higher rents from Park Mall.
For the year ended Dec 31, gross revenue rose 5.4 per cent to $253.1 million.
For Suntec Reit’s office and retail portfolio, the overall committed occupancy stood at 96.8 per cent and 98.1 per cent respectively as at Dec 31, 2009.
Net property income also dipped 1.4 per cent to $47.2 million for the quarter, but rose 5.6 per cent to $192.2 million for the year.
Net financing costs incurred for the quarter was $18.9 million, an increase of 37.3 per cent over Q4 FY2008, mainly attributed to the net loss of $5.9 million from the re-measurement of interest rate swap transactions and convertible bonds, which has no impact on distributable income.
Excluding the re-measurement, the net financing cost for Q4 FY2009 was about $13.1 million.
For the quarter, the overall all-in financing cost averaged 3.47 per cent and the gearing ratio stood at 33.3 per cent as at end-2009.
The counter closed one cent lower at $1.33 in trading yesterday.